Most Americans Retire Too Early Despite Low Savings

1. Over Two-Thirds of Americans Retire Too Early

2. The Main Sources of Income in Retirement

3. Most Retirees Spend Less Than They Can Afford

4. How Retirees Can Avoid Under-Spending in Retirement


We all know that there is a savings crisis in America. According to the National Institute on Retirement Security (NIRS), the median savings balance of near-retirement households is only around $12,000, while the median saving balance for all working-age households is only around $3,000.

NIRS states that some 45%, or 38 million working-age households, have no retirement savings. Based on 401(k)-type accounts and IRA balances alone, NIRS says some 92% of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, 65% still fall short.

While saving trends have started to improve over the last couple of years, we’re still facing a huge shortfall, especially among Baby Boomers of all races who are retiring in droves. No one knows the solution to this dilemma. The obvious answer is that most Americans will need to work longer before they retire.

Yet just the opposite is happening. Americans are retiring earlier and earlier. Recent data show that over half of working Americans are retiring between the ages of 61 and 65, despite their lack of savings. This doesn’t make sense.

Even more surprising is another study which found that most retirees in recent years are spending even less each year than they can afford to in retirement. Here again, the reasons are not entirely clear. I’ll try to make sense of them as we go along today.

Over Two-Thirds of Americans Retire Too Early

You’ve heard the horror stories about many Americans retiring with puny nest eggs and little income to live on. Still, data show that more than two-thirds of Americans are out of the full-time workforce by age 66.

Over half of Americans quit working between the ages of 61 and 65, while 18% retire even earlier, according to the data shown below from the LIMRA Secure Retirement Institute. By age 75, almost 90% of Americans have left the labor force, LIMRA says, despite the savings crisis.

The retirement statistics no doubt include some people who can’t find work or who can’t work because of health problems. Still, early retirement usually means an income squeeze. So what gives?

Americans retirement ages

Along with stopping work early, most Americans begin collecting Social Security before their full retirement age, which is 66 for many and rises to 67 for those born after 1960. That’s a bad idea since it reduces the total amount they’ll receive from the government over their lifetimes.

Fortunately, the percentage of those claiming Social Security early has declined in the last few years. That’s good news because monthly benefits rise by roughly 6.5% to 8% a year between ages 62 and 70. Still, in 2014, 57% of men and 64% of women took Social Security early.

Half of leading-edge Baby Boomers, those ages 61 to 69, have fully retired and about 15% of the total US population is now finished with work. Among this group, the presence of a traditional pension or retirement plan is often what separates those considered income-rich from those who are not, according to the latest LIMRA report.